VIEW: ASB Sticking To Baseline For Now

ASB note that their “baseline scenario is for the economy to manage to pull off a soft economic landing, but risks are building. With inflation looking to be persistent, the labour market tight, but with an increasingly wobbly economic outlook, the trade-offs facing the RBNZ look stark. It could ultimately mean a more pronounced or sharper period of monetary tightening that could likely exacerbate the slowdown already underway, eventually resulting in sizeable job losses. Alternatively, the RBNZ could apply a lighter touch to the monetary policy brakes in the hope labour market conditions normalise. If they don’t, however, this runs the risk of a prolonged inflation overshoot and higher longer-term costs to the economy. For now, we are sticking to our view of a 3.50% OCR peak and cuts from 2024 but we will be closely scrutinising labour market developments going forward. “